BUILDING ON A (REALISTIC) BUDGET

 

Before any design takes shape, you need a clear funding strategy and a comprehensive accounting of project costs.
An experienced church construction adviser explains what to plan for — and what happens when budgets fall short.

 

Q: You say hard costs are “what people picture when they picture construction,” but soft costs are “where the trouble starts.” What are some common examples of hard costs? Likewise, what are some commonly overlooked (or unaccounted-for) soft costs?

A: Hard costs are the actual costs of building a project: steel, concrete, masonry, mechanical systems, plumbing, and electrical systems.

Site development costs are also hard costs. These include grading, paving, parking lots and lighting, utilities, and everything underground. If you’re developing a site with nothing on it, you might spend millions of dollars before you ever build a building.

Churches generally realize there are other costs involved, although they might underestimate it. Sometimes, they don’t understand that municipalities require them to build infrastructure beyond their own building. For example, a municipality might require you to extend water, sanitary sewer, and fire protection loops across your property, not just to the building. Those costs can be overlooked.

But the real danger we see is when a pastor goes to a conference and asks a friend who just built a building what it cost per square foot. The pastor hears a number and thinks, “OK, I can build this many square feet,” without realizing all the other costs involved.

You have design fees, and it’s not just the architect. You also need civil, geotechnical, structural, mechanical, electrical, and plumbing engineers, along with interior design, audio, video, lighting (AVL), and low-voltage design for things like security. Then you have to furnish the building and put chairs in it. Unless the seating is fixed, chairs generally aren’t included in the hard construction cost.

I heard about one church, a number of years ago, that didn’t realize worship seating wasn’t included in its construction cost until it was about 30 days from completion. It took several months to get the chairs in. Those are expenses the church has to cover to realize the project, even if it doesn’t pay them directly to the builder. Those costs often get missed.

Q: If a project estimate “misses the mark” on factoring in soft costs, how much can it (literally) cost a church?

A: For this one, let me go back and mention one soft cost that’s often missed: material testing.

When I was an executive pastor, I missed this one myself. (I’ve learned everything I know the hard way.) We call these “regulatory costs,” and while I knew we’d need a permit, I didn’t account for material testing.

To protect itself, the owner needs an independent party to verify that the concrete is poured to the specified strength, the welds are properly made, the piers are drilled to the correct depth, and so on. On our project, I think that cost was close to $100,000 — and that was 25 years ago.

Soft costs vary depending on the size and complexity of the project. A smaller project will generally have a higher percentage of soft costs, while a larger project will have a lower percentage. But we typically see soft costs amounting to about 25% of hard costs. So, if you have $10 million in hard costs, you’re looking at another $2.5 million in soft costs.

That includes your design fees and consultants, along with furniture, fixtures, equipment, and AVL.

Q: What’s some of your best advice for better budgeting?

A: A church has to realize that every dollar it spends came from somebody in the congregation who sacrificed to give it. The church is spending from one pool of money. A commercial developer might have different budgets, but a church has only one. So, it’s really important to understand how to divide that money.

Before you ever start designing, figure out your funding strategy and how much you can spend on the project. Churches basically have four sources of funding: operating funds, if there’s a margin in the budget; assets they can sell, such as another property; fundraising; and debt.

Put those together to determine your total project cost. Then back out about 25% for soft costs.

For example, if a church has a funding capacity of $10 million, its hard costs can’t exceed $7.5 million. From that amount, you also need to subtract site development costs. Once you have that number, you can work out your cost per square foot and determine how much space you can build.

You have to start with a funding strategy, estimate your soft costs, and then establish your hard-cost number. That’s what you design to. Don’t design to the $10 million; design to your hard-cost number.

Q: OK, so if you’re talking to pastors of churches in a tough position — of failing to budget correctly, I mean — what can they do after the fact?

A: We’ve been called in to help churches that have gotten down that road, and it’s really, really hard. There are only so many sources of money available. You can go back to the congregation and ask for more, approach a lender about borrowing more, or cut something out of the project.

You might have to choose between an LED wall and furniture, for example, or make other compromises to cover costs you didn’t anticipate.

It’s especially difficult if construction has already started. Your financing and fundraising are already in place, so going back for more money is really hard. And it can damage your credibility to go back and say, “We forgot something.”

Now, if you know up front that you don’t have enough money for furniture or another item, that’s different. You can position it from the beginning: “We’re going to start construction, but we have some additional costs coming toward the end, and we’ll deal with those later. Here’s what we’re doing right now.”

That kind of upfront planning is crucial for a church.

Q: Budgeting for infrastructure for technology is another often-overlooked line item. Why is this so, and what makes factoring in these costs such a necessity?

A: Oftentimes, communication within churches isn’t very cohesive. You might have a building team and a technology team, which could be your worship department or creative team. The people working on audio, video, lighting and acoustics don’t always communicate with the building team.

Let’s say the building team tells the creative team that it has $1 million to spend on AVL. The creative team takes that number to its integrator and starts planning. It’s pretty easy to spend $1 million on speakers, microphones, cameras and lighting systems.

But sometimes people forget that those systems need places to plug in. They might require special cooling, and you can’t just run cables across a ceiling. You need conduit. There’s nothing exciting about talking about conduit in a building, so those costs get missed.

The audio team might also require what’s called “clean power,” meaning a ground separate from the building ground. That has to be installed by the electrical contractor, not the AVL contractor. Again, it gets missed.

Pretty soon, that $1 million the building team gave the creative team isn’t really $1 million anymore.

The solution is to have your AVL contractor at the table with the design team in the early stages — not after the building has already been designed.

Another thing to consider is the shape of the room and its walls. You might be able to avoid some acoustic treatments simply by designing the space differently. You’re paying for the walls anyway, so why not shape them in a way that reduces the need to come back and treat them acoustically later?

Q: You say that cost-per-square foot “still has a place.” Where is it?

A: It absolutely has a place. We use it, and we’re asked for it on every church project. Its place is in the dreaming stage, when you’re thinking, “I’d like to do something like this. What am I going to have to spend?”

We can look at what other projects have cost and come up with a dollar-per-square-foot estimate.

The problem is that our cost per square foot might be $400, while somebody else’s is $300. The church might conclude, “You’re too expensive.” But what does that number actually mean? Does it include site work? Does it include any soft costs?

Q: What are the real-life consequences if a church fails to comprehensively budget for its building project?

A: There are a couple of really big ones. One is a delayed project. You can’t move in on time if you haven’t covered all the costs.

But even bigger than that, I think, is the loss of credibility. All pastors really have is their reputation and the trust of their people. When you can’t deliver what you promised, it undermines your credibility.

You’ve gone through a campaign and told people, “This is what we’re going to build. Here are the pictures. Get behind this. I need you to do this.” People respond, only to find out later that the project wasn’t feasible because not everything was included in the budget.

That loss of credibility is just the biggest thing.

— Reporting by RaeAnn Slaybaugh